Those bothersome Venezuelan Oil Export Numbers

October 26, 2010

A while back, like two years ago, I published a table of PDVSA’s cash flow that many people thought was an exaggeration. Hell, I am no oil expert, just love to crunch numbers. I showed the calculation to oil “experts” and not one found a hole in it, but not one endorsed it either.

In that calculation, the “good news” scenario, had PDVSA exporting and getting paid for 1.5 million barrels of oil, while the “bad news” scenario had it exporting and getting paid for 1.3 million barrels of oil a day. Well, it has been my pleasure to hear oil expert Alberto Quiroz Corradi, do a similar calculation in the radio and the news lately. Nelson Bocaranda publishes his numbers today:

China 200,000 a day (no cash flow)

Belarus 200,000 a day (Cash flow?)

San Jose Pact 80,000 a day (50% cash flow)

Caracas Energy Plan 130,000 a day (I think this is 50% cash flow)

Cuba 100,000 a day (Ha ha do I need to say no cash flow, we probably pay shipping too)

Daily Consumption 700,000 barrels a day

Well, if you accept 2.4 million as the country’s production like IEA and OPEC say (They actually says it is less!), then you have 2.4-0.2-0.2-.105-.1-.7~1.1 million barrels a day, taking into account that some does get paid from San Jose and the Caracas Treaty.

I don’t know what Chavez promised Belarus, so I would (for now) subtract that from the total, however, I think local consumption is near 800,000 barrels a day. China may not be up to 200,000 a day …yet

So, add 0.2 from Belarus and 0.1 from China, but subtract 0.1 from more local consumption and you get around 1.3 million barrels a day of real cash flow from oil exports. which at $70 per barrel is US$ 34 billion for a country importing more than US$ 40 billion a year and you see the problem. Except that we have a loan from China, a US$ 3 billion issue by the Republic and now an additional US$ 3 billion in the new PDVSA and things look a little better.

But two years ago, I made the same calculation and now we are up to the worst case scenario!

It could get worse!

Except that Venezuela and PDVSA can’t keep issuing debt ad infinitum or ad absurdum and the model will break down in the next two years.

Oh yeah! Those heavy crude projects? Forget them! There is no money!

30 Responses to “Those bothersome Venezuelan Oil Export Numbers”

  1. metodex Says:

    I can’t help but to think about the poor soul who is to replace chavez in a near future.All that debt and crap economy.Its like trying to put out a fire with a plastic spoon.

  2. Kepler Says:

    For the moment it’s less for Belarus.
    This is what I wrote in my Spanish blog:

    “Bielorrusia ha firmado un contrado con Lituania para regular el tránsito de petróleo venezolano a través del puerto de Klaipeda, según dice el diario Lenta y Delfi. Esperan comenzar a llevar el petróleo a comienzos del 2011 o antes. Ya en septiembre transportaron unas 80 mil toneladas por Klaipedos. Antes habían intentado el transporte por Ucrania, Estonia y Letonia. Para 2010 Venezuela debería enviar a Bielorrusia 4 millones de toneladas de crudo – aunque no me explico cómo llegarán a esa cifra a este paso. Para 2011 tendrían que proveer unas 8 a 9 millones de toneladas. Para el 2012 serían hasta 10 millones toneladas. Eso son casi 200 mil barriles de petróleo diarios”

    Chávez will give a discount price for Belorussians, I forgot which it was…I think 30%. Now, this does not say anything about transportation costs, which must be pretty high if you consider the whole routes being tested (Lithuania and finally Ukraine may be willing to use part of its pipeline, but I am not sure how reliable they are).

  3. daniels Says:

    Can’t access the page from Venezuela. I am seeing it through a foreign proxy. Don’t know if it is some issue with my net.

  4. RWG Says:

    Chavez sees oil as his source of power. Domestic industry is not needed because Chavez has oil. Chavez only international friends have to be bought with oil. Now we learn that home use plus giveaways may be greater than that actually sold.

    Does the $70 per barrel cash flow include the costs of pumping the oil? If not, then the income will be much worse.

  5. Roy Says:

    What strikes me is that these numbers are so fuzzy. Is there truly no way to find harder data?

  6. Bloody Mary Says:

    When considering Chavez regime’s income v. expenses, remember to take into account the cash flow from expropiated industries. Then the expropiation measures make perfect sense.

  7. A_Antonio Says:

    This post exposes the main reason why Veba Oil and Citgo are not profitable and Chavez wants to sell then.

    Venezuela do not has enough oil to supply them. They have to buy oil and gasoline form outer recourses. Any business run this way can achieve nothing good.

    Ruining business is easy that way.

  8. A_Antonio Says:

    This post exposes the main reason why Veba Oil and Citgo are not profitable and Chavez wants to sell then.

    Venezuela dot not has enough oil to supply them. They have to buy oil and gasoline form outer recourses. Any business run this way can achieve nothing good.

    Ruining business is easy that way.

  9. A_Antonio Says:

    My worst case scenario is that the short oil window to be principal energetic source.

    15 or 50 year? At the present production rate, a lot of oil will be bellow ground when oil left the front line of the economics panorama.

    I recommend to Venezuelan Universities do investigations about how to convert oil in black beams, Venezuelan people will be forced to eat oil to live.

  10. Old Timer Says:

    Kepler…You raise any interesting question about how Chavez and company transport oil. Usually when an oil company wants oil at a certain location where they do not have a supply they trade oil with another company who does. In this case Venezuela would go to Russia and have them deliver their oil to Belorussia and then pay Russia back in Venezuela. Doing it this way they cut out lots of transportation cost. If Venezuela is physically shipping from Venezuela to Belorussia then someone needs to have their head examined. Usually large trading companies are involved in doing this. One big one is Glencore International (Mark Rich). It might be interesting to see how much business Venezuela is doing with Glencore. (Also, I wonder how China is taking delivery of theirs.)

  11. Speed Gibson Says:

    well small blessings and a step in the right direction….to bad it wasnt someone else

    http://www.bbc.co.uk/news/world-latin-america-10627873

  12. gd Says:

    Miguel what if you include the extra heavy crude projects? I know that when PDVSA was marketing its bond, it was puffing up its production numbers by including the projects.

  13. Roy Says:

    Speed Gibson,

    I hear you, but it is still not appropriate to cheer someone’s death. To be “without remorse”, is ok; “cheerful” is not.

  14. loroferoz Says:

    It’s not so bad news after all.

    In any other part of Latin America, in the face of a diminishing tax revenue and impoverishment, a Socialist Frankenstein does not generally last longer than three years before being driven out, at times violently. Enter Venezuela and clients. 11 years going on 12, and National Failure and/or Tyranny at the end, waiting for us.

    Our biggest problems stem from State-controlled oil and the Petrostate.

    The political establishment of the so-called 4th. Republic was (and is) more than half-Socialist itself, the other half being between primitively social democratic and plain populist. They did never conceive of a group more unscrupulous or populistic than them taking form and taking power. And it’s quite surprising too, given their nearness to the military, to real unrepentant communists, and to the huge group of their own more radical comrades, who turned coats to show they had a red lining. They did also understimate the love of democracy and the party loyalty of a populace that was taught (by them no less!) ONLY to be “loyal” to giveaways, to cheap populism, and little else besides.

    Now, chavismo is doing us a favor. These chavistas are truly doing a reductio ad absurdum of every Venezuelan misconception and irrational belief about oil (and about life in general). It can be expected, after chavismo fizzles, that PDVSA will have to be privatized because it will be near death, or else will be much less important to the State because it will be quite sick anyway. Anyway, if PDVSA buys the farm, chavismo is dead, unless they reinvent themselves as Cuban style oppressors (which is unlikely, the OEA is almost quite useless, but not utterly so).

    Given that that’s the only way (a hard crash unto reality) that Venezuelans will learn to be rational about oil… and given that Venezuelans, like every other human group, will not change ways unless forced to…

    I for my part can sympathize with the victims, but in no way feel the least guilt about what will happen. You would want Venezuelans to learn and get some sense gradually. But I guess that it will be the developing countries’ school of hard knocks.

  15. Daniel Olban Says:

    As you may have heard these days, Chavez was once again mentioning that Citgo is not profitable, etc…. However, I am inclined to believe that Chavez has started paving the way to leave the US market by selling Citgo’s assets in the US. The main problem with Citgo might not be its profitability but the oil committed from Venezuela to the US.

    Accordingly, PDVSA sells 270,000 barrels/day to Cigo Lyondell (PDVSA’s stake already sold). 320,000 bbls/day are sold to Citgo’s Lake Charles Refinery and some other 160,000 bbls/day to Citgo’s Copus Christi, plus some spot sales of 250,000 bbls/day to Chalmette and Sweeney Refineries. This totals 750K to 1 million barrels per day COMMITTED TO THE US MARKET.

    In sum, by selling some or the total of Citgo’s assets in the US would allow PDVSA to:

    a) Divert oil cargoes (that used to be shipped to the US) to China, Belarus or whatever destination our “smart” President decides and comply with China’s repayment for the $20 billion loan (plus the loans to come he he)

    b) Get cash to be invested in Venezuela for the Orinoco belt projects or whatever any other destination our “smart” president decides. Citgo’s assets in the US are said to be worth $ 10 Billions.

    To conclude, he he he…….Our friend Chavez still has some room to manouver……this thing never ends!!!!!!!!..

  16. A_Antonio Says:

    I read in a Newspaper that Citgo can no be sold in the next 4 years, because it is a guaranty of US loans. Any Info about this?

  17. Ira Says:

    Keep in mind that Citgo has taken hard knocks here in the states because of Chavez:

    Although the boycott hasn’t been “extreme,” it is still significant:

    I used to work for the Florida Department of Transportation, in the Florida’s Turnpike Division. And a year ago, the Turnpike told its main supplier, Martin Petroleum, that it would no longer purchase Citgo fuel.

    And all of the gas stations on the Turnpike were rebranded with Citgo and PDVSA losing a significant revenue.

    Granted, this is just Florida, but that’s still not chump change. And similar anti-Citgo movements have happened elsewhere in the country.

    Mind you, the ball started getting rolling when Chavez called Bush the devil, and while many, MANY of us here have never been Bush fans, we still see Chavez for what he is and has always been.

    The fact that he claims to support the average worker–yet fired 10,000 PDVSA workers–didn’t help his cause much either.

  18. Daniel Olban Says:

    Dear Antonio, what I am going to write next is pure speculation but it might help getting some insights.

    As of end 2009 Citgo had the following long term financial debt breakdown:

    – Credit Guarantee Facilities for $225 millions due in 2010.
    – Credit facility for $ 1.12 billions due in 2012.
    – Bonds exempted from Tax $ 587 millions due in 2043.
    – Guaranteed Credit line for $400 millions due 2010.
    – Bonds subject to Tax for $60 millions due in 2026
    – liabilities for other fianancial arrangements for $24 millions…..don’t know when they are due.

    This gives us a grand total of $2.4 billions. I am not financial expert, nor try to be one, but given the above I can see that $2.4 billions might not be such a big burden in comparison to Citgo’s total non-current assets…..Therefore, it might not look as if PDVSA has to wait 4 years to sell Citgo.

    But, i think it is important to remember that Citgo and/or PDVSA might have some long term contract for supply of oil/oil products. In this sense, PDVSA or Citgo would be compelled to honour such contacts before liquidating some assets…. Under such circumstances it might be necessary to wait a while, while such contracts come to expiry.

  19. Daniel Olban Says:

    Oh oh oh……. it is necessary to mention that if ExxonMobil and/or Conocophillips win the international arbitration they have on PDVSA, then Citgo’s assets would be “seizable” if PDVSA refuses to pay compensation.

    I wonder who would like to buy Citgo’s assets under such circumstances.

    For your info, PDVSA’s Property, Plants and Equipments in the US are worth $10.24 billions……And if I am not wrong ExxonMobi RECENTLYl cut its Arbitration CLAIMS to $7 billions. Before it was $12 billion. Why such a sudden cut? what’s behind that? If you have any idea just let me know, please.

  20. moctavio Says:

    Easy, the World Banks’ Court ruled that it only had jurisdiction starting on a certain date, later than that cleaimed by ExxonMobil, the compnay had to cut its claim accordingly:

    http://icsid.worldbank.org/ICSID/FrontServlet?requestType=GenCaseDtlsRH&actionVal=ListPending

  21. albionoldboy Says:

    Veba Oil and Citgo are making a loss because Chavez has loaded them up with debt.

    He has done this so they are worthless as compensation for the stolen oil assets in Venezuela.

    Now he wants to ship oil through Colombia, so China can pick up the oil in their oil tankers, the Atlantic is a US lake, China will be a Pacific power like Japan in WW2, when the US embargoes him, they would have to confront China. (Japan went to war with the US over oil)

    Thats why he supported the FARK, he needs access to the Pacific, if he can’t get it by the gun he’l get it by guile, he needs China to depend on Venezuelan oil and Russia on weapon sales, to block the US, when he goes “Full Montie”

    Chavez is playing chess and everyone else is playing checkers

  22. albionoldboy Says:

    I see everyone saying Citgo is worth 10 Billion, are they crazy?

    The oil plants are designed for Venezuelan heavy oil, they are worthless to other countries lighter crudes, who wold buy them to depend on Chavez as a supplier?

    The gas stations are independently owned, only the name belongs to Citgo, how much is that worth?

  23. GWEH Says:

    Loro you nailed it and they are reinventing themselves. There is no “the end is near” – that’s for the fucking Taliban and upcoming american withdrawal. So what is going to happen Chavismo will just cease to exist? Chavez will retire to Barinas? lol

  24. GWEH Says:

    Venezuela has become the cocaine powerouse. Drugs and thugs rule the day. This goes all the way to the top. I have yet to see one case of thugs walking away. Does Mexico and Colombia not register? Cultivation will slowly shift to venezuela too. just watch.

  25. GWEH Says:

    you are not dealing with one pablo escobar here. this is the worse of the international bad guys all in one place!

  26. Kepler Says:

    Gweh,

    Afghanistan is a horrible mess. What are you talking about?
    As for the cocaine war: as long as the gringos are paying so much money and getting high on cocaine and allowing the gun trade
    there is no solution to this problem.

  27. A_Antonio Says:

    Thanks, Daniel and others to take time to answer my questions.

    These clarify me a lot.

  28. Daniel Olban Says:

    Albionoldboy,

    Yes I agree with you in that PDVSA’s oil refineries in the US can only process Heavy Oil. Nevertheless, with a rather decent investment you could get rid of some deep conversion units and install other units more suitable to US oil market intentions.

    Nevertheless, please remember that world trend is to move from light-medium crudes to more heavy crudes…… Light and medium crudes are destined to disappear leaving room to heavy and extra heavy ones…. Thus in the long run it might be worthwhile keeping Citgo’s plant configuration for heavy crudes.

    I would not worry much about Citgo’s gas stations. That business can be transferred to other parties much easily, I guess….

  29. Gringo Says:

    From Greg Mankiw’s blog [Economics Professor at Harvard];
    From my inbox:

    Dear Professor,

    I´m from Venezuela. And this picture shows the kind of things you find when you go to a Mercado Bicentenario in Venezuela (which is the new name of a chain of private markets -Cada and Exito- recently expropiated and now runned by the Government).

    This one is from Mercado Bicentenario, in Centro Comercial Ciudad Tamanaco (CCCT), a mall, in Caracas, Venezuela.

    It says:

    Description of the product: Diana Oil.

    Fair Price: 4,73 Bfs.

    Capitalist Price: 7 Bfs.

    % of savings: 32%.

    My best regards, and congratulations for your blog, books and everything!

    http://gregmankiw.blogspot.com/2010/10/pricing-in-venezuela.html


  30. Mr. Chavez should sell forward oil when it is above $60 or potentially even at lower prices and should halt forward sales when oil is below $40 or perhaps $30 per barrel for 50% of its production. This would help to stabilize the Venezuelan economy from large shocks due to oil price fluctuations, as he could sell forward as much as 10 years like Southwest Airlines did in the early 2000s on the buy side, according to their 10k. This additional stability would help to bolster Venezuelan bonds and lower interest costs for their government if program based and reliable. I assume Venezuela has a cost of production of less than $20/barrel, with some reliable and reasonable inflation to the cost of production.

    Tarun Agrawal
    W’91, WG’98


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